Green Paper on Consumer Collective Redress
– Questions and Answers

I. THE
ISSUE

1. What is redress?

Consumers have adequate redress if they can require a trader to compensate a
loss they have suffered and which was caused by a breach of law by the trader.
Consumers may seek redress either in courts or out of court, for instance
through mediation or arbitration organised by trade organisations or public
authorities.

2. What is consumer collective redress?

Collective redress is a mechanism to seek redress when multiple consumers are
harmed by the same or a similar practice of a trader (e.g. by regularly
overcharging all their customers). There are different ways to make this
possible. For example, consumer organisations could bring the cases to court on
behalf of a group of consumers. In the EU, 76% of consumers would be more
willing to defend their rights in court if they could join together with other
consumers.

3. What is the problem?

Since mass consumer markets expand in size, very large numbers of consumers
can be harmed by the same trader. Consumers can always go to court to obtain
individual redress. Mass claims could then in principle be resolved with a large
number of individual claims. However, when consumers affected by a malpractice
want to pursue a case, they face substantial
barriers[1] which prevent them from
getting effective redress. First, high litigation costs: the legal and
expert fees paid by the consumers who decide to go to court may sometimes be
much higher than the compensation they might eventually receive. What is more,
judicial procedures can be very complex and lengthy, which
discourages consumers from trying to defend their rights in court. A
Eurobarometer survey[2]
confirms that only 30% consumers think that it is easy to solve disputes through
courts. In addition, consumers simply do not know about the different means of
redress available.

In mass claim cases affecting a very large number of consumers, the harm for
individual consumers may be low, for example when they are overcharged by just a
few euros. But if a company, e.g. a large supplier of energy to households,
overcharges each of its customers by a few euros, the total harm to society will
be much higher.

Problems of access to easy and affordable redress increase when consumers
shop cross-border. Consumers feel even less confident and secure than before
their national courts. When asked about the problems they might encounter when
shopping across borders, consumers rated highest the difficulties of resolving
problems (33%)[3].

4. What is the current situation?

Naturally, all Member States have judicial procedures allowing individual
consumers to bring their cases to court. But only 13 Member States (France,
Germany, Finland, Sweden, Denmark, Bulgaria, Greece, the Netherlands, Italy,
Spain, Portugal, Austria and the UK) have introduced collective redress schemes
in their legal system, some of them only very recently. Mediation or arbitration
schemes can provide consumers with easy and affordable redress. They exist in
Member States to different extents and their success varies. In any case, their
success is dependent on the willingness of the trader to use this mechanism.
Only 39% of European consumers believe that resolving disputes with a trader
through an alternative dispute resolution (ADR) scheme is
easy.[4]

In the case of small claims, a number of Member States put in place court
procedures which are more flexible. For example, under these improved procedures
it is easier to provide evidence, which in turn speeds up judicial procedures
and lowers their costs.

All Member States also have schemes in place allowing public authorities or
consumer organisations to put an end to a breach of consumer protection law by a
trader. However, 37% of European consumers do not trust public authorities to
protect their rights.[5]

A study launched by the Commission shows that the 13 national collective
redress schemes are very different from one another. In some countries, the
systems were created only very recently and the number of reported cases in
these countries is too low in order to be able to draw conclusions. Those
schemes for which a longer experience exists all have their strengths and
weaknesses. Strengths include e.g. no or low litigation fees for consumers or
for consumers' representatives. Weaknesses include the financial risk consumer
organisations have to face when taking such actions or the difficulties of
effectively distributing the proceeds of an action.

According to a study launched by the Commission, the existing national
collective redress mechanisms have only been applied in a few cases in recent
years. For example, the lowest number of consumers using a collective
redress mechanism is in Germany where on average only four in ten million people
every year have participated in redress action.

The collective redress scheme that reached the most people in a single case
is in Portugal where a case against a telecommunication company gave redress to
some 3 million consumers affected by the same overcharging. The Portuguese
telecom case (see below 12.) gave redress to some 3 million consumers affected
by the same overcharging. The compensation in the order of €70 million
shows the potential harm that a large group of consumers can suffer.

Overall, the studies indicate the average benefit to consumers in those
Member States where collective redress exists ranges from €32 in Portugal
to €332 in Spain. The results for the Netherlands were excluded as a few
cases involving large companies and significant amounts distorted the figures.

II. EXPLORING SOLUTIONS

6. Why a Green Paper?

The Commission is open-minded about possible solutions to the problem. With
the Green Paper, it intends to launch a wide consultation and debate on options
to improve consumer redress in the EU when multiple consumers have been harmed
by the same or a similar practice of a trader. The Green Paper is exploring how
such redress could be made more affordable and more easily accessible.

7. What kinds of solutions is the Green Paper exploring?

The Green Paper is exploring four options.

The options are:

taking no immediate action while continuing to monitor the impact of the
national and EU systems which are already in place or are about to be
implemented;

setting up a cooperation scheme between Member States which would extend the
protection of national collective redress systems to consumers from other EU
countries and recommend to Member States which do not have a collective redress
system to establish one;

putting in place a policy mix of tools which can be either non-binding or
binding. The option combines: promoting collective mediation or arbitration, -
recommending to Member States that they allow consumers to bring small mass
claims under their small claims procedure, - enabling consumer public
authorities who are members of the EU enforcement network to require traders to
compensate consumers or to skim off the profit of the traders (this would
involve amendments to the Consumer Protection Cooperation Regulation), -
encouraging business to improve complaint handling schemes and raising
consumers' awareness of existing means of redress;

proposing a non-binding or binding EU measure to ensure that a judicial
collective redress procedure exists in all Member States. This would mean that
every consumer throughout the EU would be able to obtain adequate redress in
mass cases. The issues to be considered for this option include: - how the
procedure would be financed, - the conditions under which consumer organisations
or public authorities could bring a mass claim to court, - how unfounded claims
could be prevented and - whether an opt-in procedure (consumers have to take
action to join a court action) or an opt-out procedure (consumers are covered by
a court action unless they decide to step out) is chosen.

These
options as well as a combination of elements from different options could also
be considered.

8. What is the solution?

Studies carried out by the Commission have shown that there is no easy answer
to the problem. All the current redress systems have their strengths and
weaknesses and no single mechanism is ideal for all types of claims. The Green
Paper explores all possible options on how to address the issue. The
consultation on the options or combination of elements from different options
should enable the Commission to define the appropriate response.

9. Is the Commission considering US-style class action?

US style class action is not envisaged. EU legal systems are very different
from the US legal system which is the result of "toxic cocktail" - a combination
of several elements (punitive damages, contingency fees, opt-out, pre-trial
discovery procedures).

Contingency fees: this means that the consumer only pays the costs of
the lawyers' fees but the lawyers gets a significant percentage of the
compensation granted if the consumer wins.

Punitive damages: allows for the possibility of very high penalties
in addition to the compensation granted which seek to deter the defendant from
repeating the same malpractice

Pre-trial discovery: this can force companies to disclose information
before the trial which allows the plaintiffs' lawyers to find out if they really
have a case – it can be abused and result in companies choosing to settle
out of court simply to avoid the disclosure obligations

And Opt-out systems: consumers which are victims of the same
malpractice are included in an action independently of whether they want to,
unless they opt out.

This combination of elements - "toxic
cocktail" - should not be introduced in Europe. Different effective
safeguards including, loser pays principles, the judge's discretion to exclude
unmeritorious claims, and accredited associations which are authorised to take
cases on behalf of consumers, are built into existing national collective
redress schemes in Europe.

All the Green Paper options, and in particular a possible EU collective
procedure outlined above, reflect EU legal traditions. The Commission seeks to
encourage a competitiveness culture e.g. where businesses which play by
the rules can realise their competitive advantages, not a litigation
culture.

11. What is the impact on business?

Removing the unfair competitive advantage. Reputable business will
suffer less from competitors who do not play by the rules and who profit
unfairly at the expense of consumers and competitors. Why should companies
suffer from unfair competition, for example misleading advertising and hidden
charges, which allows competitors to make profits by breaking the law?

Legal certainty. There are new systems of collective action being
introduced in different Member States – most recently in Greece, Denmark,
Finland and Italy. All are different. A European solution will eliminate legal
uncertainty with one EU wide system for the Single Market.

A more efficient redress system for settling large scale consumer complaints
will - avoid the costs of settling multiple individual consumer complaints on
the same issue.

Business who play by the rules have nothing to fear from more effective
systems for handling large scale consumers complaints – and to gain in
terms of a fairer more competitive market.

III. SCOPE OF THE GREEN PAPER

12. What kinds of practices does the Green Paper address?

The Green Paper addresses illegal commercial practices. The main target is to
provide consumers with redress if their basic rights are violated. These rights
include for example the right not to be misled by unfair advertising or wrong
information, the right not to be overcharged or tricked by unfair contract terms
in small print. The exact scope of the illegal practices that the Green Paper
addresses is still to be determined after the consultation. The following
examples illustrate some of the illegal practices that could be covered:

A Dutch bank sold to 400.000 customers from various Member States a
financial product the profits of which were supposed to reimburse a loan. The
bank did not warn consumers explicitly and clearly about the risks involved in
buying these financial products. A settlement between 165.300 Dutch clients and
the bank was reached, providing partial compensation for the clients totalling
€1.5 billion; foreign clients were not included in this compensation.

A German company offered a supposedly free-of-charge internet lottery on
several internet sites. The internet application included a provision written in
very small characters which stated that after a certain period the service would
automatically continue subject to charges. At the request of a German consumer
organisation, a German court declared the practice unfair. However, due to the
small loss suffered by consumers individually, very few of them chose to seek
reimbursement.

An Irish insurance company charged its insured clients €25 each when
they changed their policy (for example when insuring another car) - without any
notification in the policy documents. The Ombudsman ruled that the insurance
company had to refund not only the single consumer who started the action, but
every insured person who had been charged that fee during the last six years.
The company appealed to the High Court, where the judge decided that the power
of the Ombudsman was confined to the individual consumer who had complained.
Only the individual consumer who had complained was reimbursed.

A group of consumers in Portugal took action against a telecom company which
had charged its 3 million clients a 'start-up fee'. Following their joint
complaint, the Lisbon Court ruled that the charge was illegal and had to be
refunded to the clients. The compensation awarded to consumers has been in the
order of €70 million.

An action initiated by the Swedish
Ombudsman is currently on-going against an energy supplier. The company failed
to supply electricity to 7.000 consumers at the price agreed in the contract
– allegedly raising the price agreed in a fixed contract.

13. What practices are not addressed in the Green Paper?

The Green Paper does not address breaches of competition law. These practices
are covered by the Commission White Paper on damages actions for the breach of
EC antitrust rules adopted in April 2008. For example, the UK competition
authority fined nine companies for unlawfully fixing the price of a range of
replica football shirts between 2000 and 2001. A UK consumer organisation
estimated that around 2 million consumers had been harmed by the cartel and
started a collective claim for damages against one of the company involved in
the cartel.

For more information on the White Paper on damages actions for the breach of
EC antitrust rules, please visit:

The Green Paper does not focus on any particular sectors. However, a study
carried out by the Commission identifies sectors where consumers find it most
difficult to obtain redress for mass claims. These sectors are financial
services (39%), telecommunication (12%), transport (8%) as well as package
travel and tourism (7%).

IV. WHAT IS NEXT?

15. What is the timeline for consultations?

Interested parties can provide comments on the Green Paper up until
1st March 2009.

The Commission will examine all the contributions received and will publish a
summary in the first half of 2009. On the basis of the outcome of the
consultation, the Commission will decide on the next step.